BABABHAI SADARBHAI SHAIKH,AHMEDNAGAR vs. ITO WARD 1, AHMEDNAGAR, AHMEDNAGAR

Before the Ld. CIT(A) / NFAC the assessee apart from challenging the addition on merit, challenged the validity of the assessment on the ground that no notice u/s 143(2) of the Act was issued by the Assessing Officer. It was argued that the Assessing Officer has only given 2 days time for making the compliance. So far as the addition on merit is concerned, it was argued that the order has been passed in gross violation of principles of natural justice. Further, income declared in the return was not given credit by the Assessing Officer.

However, the Ld. CIT(A) / NFAC was not satisfied with the arguments advanced by the assessee and upheld the validity of re-assessment proceedings as well as the addition on merit. So far as the validity of re-assessment proceedings

Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds: 1. The assessment order passed by the Learned Assessing Officer (Ld. AO) under Section 147 read with Section 144 and Section 144B of the Act and subsequently confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)], is bad in law due to the following reasons:

The assessment order passed by the Ld.AO is bad in law and void ab initio as once reassessment proceedings are initiated on the basis of incriminating material found in the search of 3rd party then the provisions of section 153C of the Act are applicable which override the applicability of sections 147 and 148 of the Act.

The Ld. CIT(A) erred in confirming the addition of Rs.81,03,320/- made by the Ld. AO under Section 69A of the Act on account of unexplained cash deposits in the bank account, without adequately verifying whether the basic ingredients of Section 69A were satisfied.

The Ld. CIT(A) failed to appreciate the peak credit theory. The account statements clearly demonstrate both deposits and withdrawals, which ought to have been considered while determining the unexplained cash deposits.

The assessee has also raised an additional ground which reads as under: “The assessment order passed by the Ld.AO is bad in law and void ab initio as once reassessment proceedings are initiated on the basis of incriminating material found in the search of 3rd party then the provisions of section 153C of the Act are applicable which override the applicability of sections 147 and 148 of the Act.”

The Learned Counsel for the assessee referring to the above additional ground submitted that the additional ground raised is purely legal in nature which goes to the root of the matter and all the necessary facts are already available on record. Referring to the decision of Hon’ble Supreme Court in the case of the National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) and in the case of Jute Corporation Of India Ltd vs Commissioner Of Income Tax And Anr (1991) 187 ITR 688 (SC) submitted that the additional ground raised by the assessee should be admitted.

After hearing both the sides and considering the fact that the additional ground raised by the assessee is purely legal in nature and all the material facts are already available on record and no new facts are required to be investigated, therefore, in view of the decision of Hon’ble Supreme Court in the case of the National Thermal Power Co. Ltd. v. CIT (supra) and in the case of Jute 11. The Ld. Counsel for the assessee referring to the decision of the Hon’ble Officer under section 148 requiring the assessee to file a return within thirty days but return was filed after eight and a half months, since return was filed by the assessee in response to said notice though delayed, there should have been a notice issued under Section 143(2) as requirement to issue notice could not be dispensed with. He submitted that in the instant case the assessee has filed the return of income in response to notice u/s 148 though belatedly. Therefore, in light of the decision of the Hon’ble Patna High Court in the case of CIT vs. Nagendra Prasad

Referring to the following decisions, the Ld. Counsel for the assessee submitted that mere cash deposits in the bank account does not amount to 7 undisclosed income of the assessee and reopening of assessment merely based on cash deposits is bad in law: i) Sanjay Sadashiv Navale vs. DCIT vide ITA No.452/PUN/2019 order dated 31.05.2022 for assessment year 2012-13 (Delhi-Trib.) iii) Milind Madhukar Edke vs. ITO vide ITA No.648/PUN/2020 order dated 18.01.2023 for assessment year 2011-12

Referring to the following decisions, he submitted that the proper course of action for reassessment in the instant case was u/s 153C of the Act and not under section 147 of the Act when information is received as a result of third party search: ITO vs. Narendra Sampatlal Bafna vide ITA No.688/PUN/2024 order dated 2017-18 for assessment year 2017-18

He submitted that the assessment order in the instant case was passed u/s 144 of the Act and the Ld. CIT(A) / NFAC has not decided all the grounds raised before him. He accordingly submitted that the appeal filed by the assessee be allowed. In his alternate contention, he submitted that the matter may be restored to the file of the Assessing Officer for fresh adjudication.

The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC.

Under these circumstances, we find merit in the arguments of the Ld. Counsel for the assessee that the finding given by the Ld. CIT(A) / NFAC that the assessee has not filed any written response to notice u/s 148 is incorrect.

We find the Hon’ble Patna High Court in the case of CIT vs. Nagendra Prasad (supra) has held that where notice was issued by the Assessing Officer under section 148 requiring the assessee to file a return within thirty days but return was filed after eight and a half months, since return was filed by the assessee in response to said notice though delayed, there should have been a notice issued

The Tribunal found, relying on the decision in Hotel Blue Moon (supra) that the proceedings are liable to be struck down. It was held that the return was filed by the assessee in response to the notice under section 148 though delayed and in such circumstance, there should have been a notice issued under section 143(2) as has been held in Hotel Blue Moon (supra).

The only question of law arising in the facts and circumstances of the case is whether notice should have been issued under section 143(2) of the Income-tax Act?

Admittedly, the notice was issued by the Assessing Officer under section 148 of the Act on 14-7-2008 requiring the assessee to file a return within thirty days. A return was filed much later on 31-3-2009, after eight and a half months.

On identical facts, in M.A. No.239 of 2011 titled as Chand Bihari Agrawal vs. Commissioner of Income Tax, Central, Patna decided on 25-7-2023, this Court considered the issue and held against the revenue.

We find that the question of law has to be answered in favour of the assessee and against the revenue. Hotel Blue Moon (supra) governs the issue which has been followed in Chand Bihari Agrawal (supra).

The Miscellaneous Appeal stand dismissed.”

In view of the above and since the Ld. CIT(A) / NFAC has not adjudicated the various grounds raised by the assessee, therefore, without going into merits of the case, we deem it proper to restore the issue to the file of the Ld. CIT(A) / NFAC with a direction to adjudicate all the grounds raised by the assessee afresh and as per fact and law after providing due opportunity of being heard to the 11 assessee. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.

In the result, the appeal filed by the assessee is allowed for statistical purposes.

अपीलार्थी / The Appellant; 2. प्रत्यर्थी / The Respondent

4. The concerned Pr.CIT, Pune DR, ITAT, ‘A’ Bench, Pune 5. गार्ड फाईल / Guard file.